The role of RNAi interference in genome surveillance and antiviral defense is well known. However, recent studies in diverse organisms suggest that endogenous short RNAs and their co-factor Argonaute proteins also regulate active euchromatic genes in the nucleus. In C. elegans, endogenous siRNAs (endo-siRNAs) complementary to actively transcribed protein-coding genes exist in a complex with the nuclear Argonaute protein CSR-1. Surprisingly, these endo-siRNAs do not cause silencing of their target genes. Deficiencies in CSR-1-bound endo-siRNAs cause severe developmental phenotypes in C. elegans, most notably, embryonic lethality due to defects in chromosome segregation. Our recent work revealed that this lethality is largely due to a depletion of core histone proteins as result of misprocessing of 32 ends of histone mRNAs. Moreover, our Global Run-On Sequencing (GRO-seq) analysis of transcription misregulation in viable loss-of-function mutants of the CSR-1 pathway revealed a global reduction in transcription of CSR-1 target genes and an elevation in cryptic and antisense transcription. This role of endogenous RNAi in promoting sense-oriented Pol II transcription is reminiscent of the recently discovered effects of gene looping on transcription directionality. The emerging view from studies in yeast and mammalian cells is that all active genes adopt a promoter- terminator looping conformation, which facilitates Pol II re-initiation. Importantly, proper co-transcriptional pre- mRNA processing facilitates gene loop formation and many 32-end processing factors have been implicated in gene looping. The experiments proposed here are aimed at testing two related ideas: 1) that transcriptional defects seen in CSR-1 pathway mutants are due to the disruption of gene loops (Aims 1 and 2), and 2) that the primary role of CSR-1-bound endo-siRNAs is to promote pre-mRNA processing (splicing, or 32-end formation, or both), which in turn stimulates gene loops (Aim 3). Moreover, because GRO-seq analyses confirming a global contribution of gene looping to the enhancement of sense-oriented transcription are lacking, we propose to analyze transcription in mutants of conserved factors required for gene loop formation (Aim 2) and to establish C. elegans as a suitable organism for further genetic, molecular and genomic studies of the connection between RNA processing, transcription and chromatin architecture. The proposed research will provide new insights about the positive role of endogenous RNAi in global regulation of active genes in C. elegans, which may represent an essential component of gene regulation in metazoans.